Statement by IMF Mission at the End of a Staff Visit to the Russian Federation

Press Release No. 13/498
December 10, 2013

An International Monetary Fund (IMF) mission headed by Mr. Antonio Spilimbergo visited Moscow during December 4-10. The team met with Finance Minister Anton Siluanov, Bank of Russia Governor Elvira Nabiullina, other senior officials, representatives of the business community, and academics. At the conclusion of the visit, Mr. Spilimbergo made the following statement today in Moscow:

Growth has continued to slow, while inflation remains above target and vulnerabilities persist. We project GDP growth in 2013 to be at 1½ percent, with a slight pick up to 2 percent in 2014 contingent on recoveries in investment and external conditions. Inflation is projected to remain above target, with economy still close to its full capacity despite recent slowdown in growth. These projections are subject to risks—prospective tightening of international financial conditions, Russia’s dependence on international oil prices, growth in unsecured credit, and the impact of uncertainty concerning the pace of structural reforms on business climate and investment.

Fiscal policy has been well supported by the fiscal rule, though some weaknesses remain. In 2013, the federal government fiscal deficit is projected to be 0.8 percent of GDP, driven by somewhat weak non-oil revenues. The overall weaker revenues and lower-than-budgeted privatization receipts have precluded transfers to the Reserve Fund in 2013. For 2014 and even more for 2015-16, budgets appear insufficiently ambitious, including due to optimistic revenue projections based on high oil-price assumptions. In addition, the planned diversion of contributions to the Pillar I pension fund in 2014 will create further pressures in 2015 when it is unwound, as will the use of proposed off-budget loan guarantees and of the National Wealth Fund for infrastructure expenditures. This may result in overall expenditures being above the levels committed under fiscal rule, and may result in decumulation in the Reserve Fund. It is necessary to rebuild these buffers, including through pension reform and pro-growth expenditure rationalization.

Monetary policy should continue to focus on reining in inflation, while promoting greater exchange rate flexibility. Continued higher-than-targeted inflation—even while the economy remains near full capacity—indicates a need for a tightening bias. Further, an accelerated move towards broader exchange rate flexibility would enhance the ability to absorb shocks and deal with changes in international monetary conditions, especially as the central bank implements an inflation-targeting framework.

Moves to address risks in the financial sector are welcome. Rapid growth in unsecured consumer credit remains a concern. In this regard, the mission welcomes the steps taken by the authorities to, inter alia, tighten risk weights and raise provisioning. It urges the authorities to consider further measures should lending growth not slow further. We note the assumption by the central bank of the ‘mega-regulator’ responsibilities, and welcome demonstrated strong commitment to deal promptly with weak banks and anti-money laundering-related issues.

Structural reforms should be a critical element of any plan to enhance Russia’s growth potential. Inadequate infrastructure, constraints on access to finance for many firms—especially small- and medium-sized enterprises—and skill mismatches in the labor market appear as key obstacles. Further corporate governance reforms and a reinvigorated privatization agenda would be welcome. Such efforts to increase the transparency and predictability of the business environment should help Russia retain domestic savings and attract foreign investment to support higher and more stable growth.

“The mission would like to thank the authorities for their hospitality and productive discussions.”



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